The volume of electronic payment transactions executed with general purpose cards such as credit cards, debit cards, both “online” and “offline”, and ATM cards at the point of sale (“POS”) account for 28.5% of consumer spending in 2005 up from 12.6% in 1995. Notwithstanding, by 2010, such payments are expected to grow by 70% further eroding the profitability of merchants. The system for executing electronic transactions is currently determined by card issuing banks, card associations, EFT networks and processors which charge substantial fees for processing these transactions in the form of interchange. Today's card payment networks are grossly inefficient and layered with cost. Each time a card association, EFT network or processor touches a transaction they add fees in the form of interchange. Those transaction fees are borne by the merchant, passed on to the customer and continue to rise. United States interchange fees have increased 29% since 1995. At present the transaction fee paid by the merchant for a relatively moderate purchase of $100.00 can approach $3.00. It will be readily seen that given the already large and increasing percentage of POS sales that are executed using general purpose cards such as credit cards, debit cards and ATM cards, these transaction fees have a significant impact on merchant profitability. Since a greater number of transactions are subject to interchange fees the total cost of interchange to merchants have tripled in the last ten years. As the trend toward increasing usage of such payment mechanisms continues to rise, the transaction fees will similarly increase. In 2005 American merchants paid nearly $50 Billion to accept credit cards.
This presents a dilemma for merchants because while customers generally like the convenience of using such devices for completing purchases, the transactions continue to grow more costly. On average credit card transactions cost American Merchants six times as much as cash transactions and twice as much as checks or PIN based debit cards.
Average cost per transaction of accepting payments for U.S. retailers in 2000OFF-LINE(SIGNATURE)ON-LINE (PIN)CREDIT CARDSDEBIT CARDSCHECKSDEBIT CARDSCASHAverage Cost$0.72$0.72$0.36$0.34$0.12Per Transaction
Furthermore, while customers generally like using checks for payment, the use of checks has been in decline. Furthermore while customers generally like using checks for payment they are not as convenient as cards hence there use their use has been in decline. Accordingly, there is a need to provide consumers and merchants with a real alternative to the disadvantages of the current methods of payment while preserving the advantage of payment by check.
Furthermore, because conventional debit cards, credit cards and ATM cards are under the control of the issuing banks, card associations, EFT networks and processors merchants must comply with the dictates of these institutions and have no control over the processes. These merchant restraints are designed to restrict merchants' options as to what type of payment systems they can accept and how they can price them, and force merchants to bundle the pricing of payment systems with the underlying goods and services being sold. In effect, all consumers underwrite the increased costs of general purpose cards in the form of higher prices for all consumers, even those who pay by cash. Another disadvantage is that merchants have no ability to identify a specific customer by name, address, telephone number, e-mail address or other identifying data and link them to consumer purchase information within transaction related databases. Such information is of tremendous potential value to merchants as it may allow the tracking of transaction related data, so-called “basket metrics” and the relationship of that data to the specific customer. Basket-metrics can include information without limitation, such as item count, sales amount, demographics concerning customers and store location, responsiveness to promotions such as coupon or special promotion codes and customer related data concerning the purchase frequency, volume and value on a per customer basis over the lifetime of a shopping relationship. Without the ability to readily track that information and associate it to individual consumers whose names, addresses and other contact information is known, retailers lose the opportunity to directly target and market consumers on an individual basis.
Furthermore, as consumer purchases are currently effectuated, managing effective buyer loyalty or rewards programs is rendered difficult because such programs require the tracking of consumer purchases both in terms of number and volume. Unless merchants have an effective method for gathering, compiling and administering necessary transaction related data along with consumer specific data, reward and customer loyalty programs cannot effectively be managed.
In addition, merchants generally do not have access to consumer credit information including, of specific concern, readily accessible information regarding prior approvals or declines at the point of sale (“POS”). Occasionally a merchant will receive an approval from a credit card issuer only to later find out that the approval was based upon a “stand in” event when the customer's actual balance information was unavailable. Thus a merchant may complete a sales transaction only to have the transaction subsequently fail to close or be charged back. This occurs when a consumer is the victim of fraud, enters a dispute with their credit card company, or when a consumer with a poor credit history defaults, has insufficient funds, or otherwise precludes funding of the sales. Similarly, other customers may have an excessive rate of returns. That is, the customer may regularly purchase items but subsequently return them for a refund or other credit. Such customers may be considered less desirable or less profitable customers; information as to whom the merchant would like to be informed.
Finally, under current systems, managing effective consignment relationships is rendered difficult and time consuming as a result of the record keeping that must accompany such arrangements and the delays in settling accounts between the parties involved. Thus, for example, a supplier may be hesitant to enter into a consignment agreement because of the delays in receiving payments from merchants.
Accordingly, there is therefore a need for a retailer owned POS payment system which provides convenience to consumers, reduces and controls transaction costs for merchants, allows for the effective management of consignment relationships, and allows for merchant access to consumer transaction related information which the merchant can then use for a variety of purposes.